Deutsche axes Chi-X US share product
Deutsche Bank has terminated its Chi-X quoted US securities product and will return funds to investors.
Mentioned: Zoom Communications Inc (ZM), Apple Inc (AAPL), Berkshire Hathaway Inc (BRK.B), The Walt Disney Co (DIS), Microsoft Corp (MSFT), Tesla Inc (TSLA)
Deutsche Bank has pulled the plug on its US shares product TraCRs, quoted on alternative exchange Chi-X, telling investors their money will be returned.
In a statement, the investment bank said it would be discontinuing its Chi-X listed Transferable Custody Receipts (TraCRs) on 21 February 2022 following an internal business review. The domestic equity market product allowed Australia investors to gain exposure to US companies.
"Deutsche Bank continues to invest in its local corporate banking business, as it remains core to the Asia Pacific strategy and is a key area of growth for Deutsche Bank in Australia," the company said in a November termination notice. A spokesperson for Chi-X told Morningstar the decision to terminate was driven Deutsche strategic priorities, adding that the exchange had experienced "strong and substantial growth" over the last decade.
“Chi-X Australia is proud to have been part of bringing TraCRs or Transferable Custody Receipts, to the Australian market. The decision to de-list TraCRs came down to Deutsche Bank’s strategic priorities and we are not in a position to make comment on their behalf.”
“Over the past decade Chi-X has experienced strong and sustained growth and has achieved significant milestones including gaining over 20% market share, a daily record of $3.8 billion traded value in equity trading and up to 50% of the Australian ETF market (trading and reporting).”
Deutsche Bank declined to comment further on the termination of TraCRs.
The alternative exchange launched its first series of TraCRs in October 2018 with the likes of Apple (AAPL), Microsoft (MSFT) and Disney (DIS) before expanding to 41 options and including Berkshire Hathaway (BRK.B), Tesla (TSLA) and Zoom (ZM).
Chi-X and Deutsche Bank established TraCRs to make US shares more accessible to Australian investors. TraCRs were set up like Australian securities quoted over US shares, giving investors the beneficial interest in the US share.
They were designed to be traded, cleared and settled in Australian dollars, under local regulations and trading hours. Dividends were also paid in Australian dollars into Australian bank accounts.
The idea was to support investors by removing foreign brokerage fees and decreasing US custody fees which are currently imposed for investors.
Some of the big brokers offered TraCrs including CommSec, ANZ, Evans & Partners, Morgans, BNY Mellon, Westpac and Wilsons.
“As a TraCR holder you have a beneficial interest in the underlying US share and subject to the terms of issue, the right to convert your TraCR holding into that share," Chi-X chief executive Vic Jokovic said in 2018."TraCRs bring the global investment world to our own backyard."
A couple of years later, Jokovic went on to say he had seen “sustained interest” in TraCRs among retail and SMSF investors.
Last year, it was reported that there had been just 1300 TraCR trades since inception with $30 million under management.
Deutsche Bank outlined the three options for investors leading up to the termination date.
Firstly, existing holders can sell their TraCRs up until the termination date. Secondly, investors can submit a request prior to market close on 16 February 2022 to have the TraCRS cancelled, and the underlying shares transferred to a US brokerage account.
The last option is for investors do to nothing at all, in which case DAIL will sell the underlying shares of the TraCR, deduct the applicable tax, convert it to Australian dollars and pay it into the nominated bank account by 14 March.
Deutsche Bank will incur all transaction costs, but brokerage fees may still apply.
The termination of TraCRs comes as online brokers like Stake and Superhero have come to market with $0 brokerage on international securities, offering easy access to big US names. Recent figures from Superhero show the start-up has grown from 22,000 users in December 2020 to 150,000 today.
However, the lack of brokerage fee does come at a cost with the new wave of brokers collecting interest from uninvested cash and foreign currency transfer fees.